Two former employees of Blackwater Worldwide have accused the private security contractor of defrauding the government for years through phony billing, including charging taxpayers for alcohol-filled parties, spa trips and a prostitute.

In court records unsealed this week, a husband and wife who worked for Blackwater said they have firsthand knowledge of the company falsifying invoices, double-billing federal agencies and improperly charging the government for personal expenses. They said they witnessed "systematic" fraud in the company's security contracts with the State Department in Iraq and Afghanistan, and with the Department of Homeland Security and the Federal Emergency Management Agency in Louisiana after Hurricane Katrina.

Blackwater is the State Department's largest security contractor, and a State Department spokesman said Thursday that his agency and the Justice Department reviewed the allegations in 2008, when the lawsuit was filed under seal in federal court in Virginia. The spokesman, P.J. Crowley, could not determine what came of the review.

Brad Davis, a former Marine, served as a Blackwater team leader and security guard, including in Iraq. His wife, Melan Davis, worked as a finance and payroll employee, starting in Louisiana. Their lawsuit was filed under the False Claims Act, which allows whistle-blowers to win a portion of any money the government recovers as a result of the information. However, the Justice Department has chosen not to join them in pursuing their lawsuit, a decision that led to the suit being unsealed this week.

The company changed its name to Xe Services LLC last year. Xe spokeswoman Stacy DeLuke said Thursday that the Davises' allegations are false. "The allegations are without merit and the company will vigorously defend against this lawsuit," she said. "It is noteworthy that the government has declined to intervene in this action."

After the attacks of Sept. 11, 2001, Blackwater became the largest of the State Department's private security contractors. It has since been paid billions of dollars to protect diplomatic employees in Iraq and Afghanistan and for other agencies' security missions. The company also became a major source of anti-American sentiment in Iraq because of repeated deadly shootings involving its guards.

Iraq moved to expel Blackwater after a September 2007 incident in which witnesses told the FBI that the company's security guards fired guns without provocation into a busy intersection, killing at least 14 Iraqis. The Justice Department charged six Blackwater guards in that incident. One pleaded guilty, and a judge dismissed the charges against the five others in December.

In their suit, the Davises assert that Blackwater officials kept a Filipino prostitute on the company payroll for a State Department contract in Afghanistan, and billed the government for her time working for male Blackwater employees in Kabul. The prostitute's salary was categorized as part of the company's "Morale Welfare Recreation" expenses, they alleged.

Melan Davis said in court papers that while working in Blackwater's finance department, she questioned how the company could bill the government for its workers' travel expenses to and from Iraq when it lacked the documentation for those trips. She said she later traveled to a hotel in Amman, Jordan, where Blackwater personnel often stopped en route to Iraq. While there, she said, corporate officers directed her and two co-workers to generate reams of false invoices for plane travel at inflated rates, so her Blackwater bosses could overcharge the government.

In one instance, the Davises allege, the company was paying inflated prices to a vendor whose work was billed to the Department of Homeland Security for services related to security after Hurricane Katrina. They said the overpayments allowed the vendor to provide a barbecue pit for Blackwater staff parties.

Melan Davis argues that Blackwater terminated her in February 2008 because she questioned fraudulent billing. Brad Davis resigned.

Schwellenbach works for the Center for Public Integrity. Staff writer Jerry Markon contributed to this report.